Plunging Crude Prices May Signal Recession in 2019

The continuing collapse in oil prices signals that investors are worried about a 2019 recession, according to Helima Croft, global head of commodity strategy at RBC Capital Markets. Oil prices have now plunged by about 40 percent from their 52-week highs at the start of October. Last week alone, U.S. West Texas Intermediate crude tumbled 11 percent, posting its worst weekly performance in nearly three years.

On Monday, WTI fell below $45 a barrel for the first time since July 2017.

“I think what we’re seeing in oil is a big, big concern for 2019 about a recession. I think that is really weighing heavily on this market,” Croft told CNBC’s “Closing Bell” on Friday. The rout has continued despite a pledge earlier this month by OPEC, Russia and several other oil producers to remove 1.2 million barrels per day from the market beginning in January.

Surging oil production from the United States, Saudi Arabia and Russia is one factor behind the selling. But Croft says the depth of the pullback indicates that expectations for slower economic growth and darkening demand forecasts are what’s truly driving the rout.

“I think it’s a broad-based fear about where is demand going to be for oil next year, concerns about Chinese demand in particular,” Croft said.

To be sure, Croft is not necessarily forecasting a recession, and there are few clear signs that a period of economic contraction is on the horizon. Still, surveys indicate that executives are growing more worried about the prospect.